Policy holders accuse insurer in multi-district litigation of increasing its fees in violation of their life insurance policy agreements.

The largest cost in any insurance product is the cost of paying claims. Payments of claims are referred to as the Cost of Insurance or COI and are the largest single cost factor. With life insurance, COI charges can account for 75% - 85% or more of the total premium. Do you have clients who do not know what they are actually being charged for cost of insurance charges (COIs)? Would you know if the costs of your (client's) policies have been increased?

The National Association of Insurance Commissioner (NAIC) reports that 62% of people who own life insurance do not really know what they have or why they bought it.^[1] In order to reassure your clients that they made the appropriate choice in life insurance products and/or reveal when there are opportunities for improvement, it is important to inspect what you expect out of our client’s life insurance portfolios.

A recent case illustrates the importance of measuring the costs of life insurance and also reviewing these costs periodically to make sure that the expectations of the policy are being realized and any unexpected changes are revealed. This case^[2] centers on a letter Conseco sent to policyholders in October 2008, notifying them that their policies were underfunded and couldn’t cover increased fees and expenses that Conseco was planning to charge. The company “inherited several unprofitable blocks of policies in connection with its acquisition of [two other insurance companies] in 1996.” Conseco stated that its operating results deteriorated as a result of these acquisitions. The pricing of all products is a function of costs and interest. When it is harder to make money on one block of business, the only options often become increasing costs on other blocks of business to make up losses on these lower performing blocks of business.

In the October 2008 letter, Conseco stated that it would increase cost of insurance (COI) and expense charges for these policies. In or around October 2010, after entering into the Regulatory Settlement Agreement(RSA) with certain state insurance regulators, Conseco began implementing increases in COI and expense charges for the policies. In March 2012, Plaintiffs moved for a preliminary injunction to preclude Conseco from continuing to deduct COI charges from certain Policy holders’ accumulation accounts in accordance with the 2010 COI Rate and Expense Charges Changes.”

Judge stated on Friday July 12^th, 2013 “Get [the motion for settlement] to me and I’ll sign it.”

INSPECT WHAT YOU EXPECT! Use a Veralytic Research Report to measure policy expenses and know if a particular insurer is increasing or decreasing policy expenses. If you(r clients) do not know what they are paying for cost of insurance charges (COIs), fixed administration expenses (FAEs), cash-value-based "wrap fees" (e.g., M&Es) and premium loads in their life insurance policy holdings now, then there will be no way to know if or when such policy expenses are increased. Now is the time to find out. Don’t wait until there is a class action suit to make you aware of a change in your policy.

The appropriateness of a policy should be re-evaluated when the insurer announces product changes.  In order to fully assess the impact of recent changes on your clients’ permanent life insurance portfolios, or to establish a baseline by which to judge the impact of future shifts in cost, request a Veralytic Research Report now.  Just fax the detailed expense report along with the policy illustration toll free to 800-409-3222 or email to reports@veralytic.com to request a Veralytic Report for your client's policy.  If the policy illustration is not available, download a sample Request for Information (RFI) letter to gather the necessary policy information. 

This class action case offers settlement options for class members. Before any class members take action, Veralytic would like to offer Conseco policy holders one free Veralytic report. Submit an inforce illustration, if Universal Life or Variable Universal Life then the illustration must include detailed expense pages. If Whole Life, then the illustration/submission must include the dividend interest crediting rate. Either way, only submit the one illustration that most closely corresponds to client expectations before August 25, 2013 and mention this e-newsletter for one free Veralytic report on your Conseco policy.